State cracks down on liquor sales tax fraud

Eighteen Washington County liquor retailers will be audited as part of a statewide crackdown on sales tax fraud in the industry, the Maryland Comptroller's Office said Tuesday.

Spokesman Michael Golden said the comptroller is expanding a pilot program, tested in Baltimore City, which uncovered $3.2 million in unpaid sales taxes.

Right now the office is targeting Washington County, but eventually will hit every county at random, he said.

"I think we're just kind of spreading the joy, if you will," Golden said. "It promises to generate a fair amount of money for the state of Maryland and hopefully it will also create an environment of compliance with the law. It'll keep them more honest, or at least more careful as to how they keep their books."

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Liquor retailers were singled out because their businesses are highly regulated, which makes it easier to identify potential scofflaws, he said.

Starting in February 2002, state auditors began using a computer software program to compare alcohol distributors' sales records with sales taxes paid by liquor stores, bars and restaurants.

The computer program spots those businesses where the numbers don't add up, Golden said.

After combing through the records of 46 Baltimore businesses, auditors found $3.2 million in unpaid sales taxes. That figure does not include added penalties and interest, he said.

From there, the comptroller's office went to Worchester County, where they have audited 16 retailers so far and found $90,000 in unpaid taxes, he said.

Caroline Ciraolo, a Baltimore tax controversy attorney, said the comptroller's office has found a fair way to identify potential tax cheaters.

"It's a very creative use of resources," she said.

But she said she questions the methods auditors are using to calculate the unpaid taxes. The comptroller's office uses an average markup price for retail products rather than taking into account deep discounts that some retailers use, she said.

She has heard that some retailers are closing their doors rather than get into a lengthy legal battle with the state.

"It can be devastating. It becomes a huge hardship," she said.

A taxpayer accused of fraud is assessed a 100 percent penalty based on past-due taxes, she said.

Ciraolo is representing some taxpayers who have appealed their assessments.

The first step is the Office of Hearings and Appeals and if the taxpayer is not satisfied he or she can appeal to Maryland Tax Court, she said.

Representatives for the Washington County Restaurant and Beverage Association and the Board of License Commissioners said they were not aware of the crackdown.